Conflicts in the Middle East cause oil to rise 8% this week and analysts are already projecting a barrel at US$200. (Image: REUTERS/Regis Duvignau)
Since the beginning of the week, the price of oil has already risen by around 8%. The reason is the escalation of conflicts in Middle Eastwith the risk of Iran e Israel go to war. And, due to the commodity, tensions promise to overcome international barriers and reach Brazil.
Pedro Rodrigues, partner at the consultancy CBIE (Brazilian Infrastructure Center) and specialist in oil and gas, highlights in an interview with the Money Times that there is even a positive side to the rise in oil prices — but the negative side is stronger.
On the one hand, the Brazil is a major oil exporter and the higher price improves trade balance. On the other hand, the rise in fuel prices tends to generate more inflation, not only in the transport sector, but also in the food sector due to the price of freight.
“The impact at the end of the line is inflation and expensive oil tends to worsen this economic scenario in Brazil, which already has high inflation”, says Rodrigues.
The expert also remembers that it is necessary to observe the role of Petrobras (PETR3; PETR4) during the commodity's upward movement. The company no longer uses the Import Parity Price (PPI) and, therefore, the market does not know how the company will behave in a scenario of stress and high volatility.
For now, Petrobras has a margin on the price of fuels. According to CBIE's daily survey, gasoline sold in Brazil is 3.93% above the international price, while diesel is 5.27% more expensive.
Middle East: Understand what is happening with oil
Conflicts between Israel, Hamas and Hezbollah, although bad from a human point of view, do not have much of an economic impact on the world. The problem is with Iran's entry into history.
It is worth remembering that Iran is the eighth largest oil producer in the world, with a production of 3.9 million barrels per day. In other words, any damage to Iranian oil infrastructure could harm the supply of the commodity.
Roberto Ardenghy, president of IBP (Brazilian Institute of Petroleum and Gas), points out that countries in the Middle East region are major producers, but also major exporters of oil — such as Saudi Arabia, Iraq, Iran, Kuwait and the United Arab Emirates. Therefore, any conflict in the Middle East causes this market reaction to increase the price of oil.
Furthermore, the country controls the Strait of Hormuz — a strategically important waterway for transporting oil from the region to the main markets in the world. Iran could close this passage, also disrupting the supply of the product.
According to Ardenghy, from a logistical point of view, there are two ways to remove oil from the Middle East.
“You have the Red Sea with the Suez Canal, where mainly Iraqi production is transported, and on the other side you have the Persian Gulf with the Strait of Hormuz, through which a very important amount of oil and gas passes. It is estimated that between 20 and 30 million barrels per day circulate through the Strait of Hormuz. So, it really is a critical region for this supply and any type of problem in terms of access can really cause global supply problems”, he states.
Barrels can cost more than US$200
Bjarne Schieldrop, chief commodities analyst at the Swedish bank SEBestimates that crude oil futures could rise to US$200 a barrelor more, in a scenario of destruction of Iran's infrastructure.
“If you took away the oil facilities in Iran and forced exports down by 2 million barrels, then the next question in the market would be what would happen in the Strait of Hormuz? This, of course, would add a significant risk premium to oil,” he said in interview with CNBC.
The analyst's expectation is Israel will retaliate after the latest Iranian attack — and that will happen within about five days, probably before the one-year anniversary on October 7 (day of Hamas attack on the music festival in Israel).
Rodrigues, from CBIE, states that, for now, it is difficult to measure the impact of the conflict on oil prices, because everything will depend on the measures taken by governments.
“The sky is the limit. In the case of the Strait of Hormuz, for example, Iran can go from banning access to dropping bombs on ships there. Depending on what is done, then, yes, prices can reach more than US$200.”